‘You are reserved for a great Monday!’ Fine, but Sunday will never end.—Kafka

July 03, 2009

Matt Taibbi on "The Great American Bubble Machine"

Oh, I'm a huge fan of this guy's investigative journalism, published today "on how Goldman Sachs has engineered every major market manipulation since the Great Depression." (Cue emphatically vague, prosaic protests from the PR wing of Goldman Sachs.) Especially as at times he seems like the only one who is effectively doing this: translating our reality of economic-apartheid/corporate dictatorship/organized crime to a popular audience, and with proper pathos of indignation. Taibbi may not have been possible without the likes of Chomsky, but he sure does a better job keeping us awake. (Needless to say, part of this work is holding otherwise sympathetic but obviously worn-down, increasingly platitudinous critics-become-automatons to a higher standard, which Taibbi also does pretty well.)
His conclusion under the fold:

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance. (Read the whole article)

5 Comments

Hi Matt - I appreciate you posting on Taibbi. I enjoy his work very much but it is clear that the language and style that he uses is geared more toward younger readers (people under 30 perhaps). But certainly there have been many good accounts even in mainstream news papers of what has happended - I think of Krugman's or Robert Reich's editorials as an example.

What is striking to me is that people's anger still seems rather diffused and largely misplaced. Most folks I know are angry at the poor schmucks that took out loans they could not afford and do not even try to understand the larger picture. It seems that the crisis will have to spread and get deeper before we see more civil or social unrest. But perhaps this would not even drive people into the streets?

Well he is writing for Rolling Stone. But yes, there are of course others investigating well if also writing more calculatedly or "maturely." They do their homework but are always careful to avoid the point of pathos (which is exactly what it takes to get in the pages of the New York Times, incidentally, to recall a recent article in Harper'sThe Nation). They never really get pissed off, seeming to leave that burden as if for someone "younger." So who fills that gap, then, besides Taibbi?

I think the audience he writes for is actually pretty powerful and significant. Which is maybe why he gets the response from those in power that he does. Call it the irresistible aesthetic force of 'pathos of indignation' I guess, even if in his case it manifests mostly as a willingness to insult. You could say he writes like the blogger 'lenin' with a better ideological bullshit detector, or without going proudly off the deep end into irrelevance/more-radical-than-thou/party-line SWP dogmatism, etc. [edit: in fairness I have not been reading 'lenin for some time; I hear his commentary on Iran is good]. Anyway. I'm pushing thirty and I think Taibbi's great...But maybe that'll change!

In case you didn't see it yet, Taibbi has another brilliant summary of how we the taxpayers have helped Goldman Sachs make lots of money: http://trueslant.com/matttaibbi/2009/07/16/on-goldmans-giganto-profits/

I really think their involvement and profiting from the AIG bailout needs to be screamed from the mountain tops - if anyone will listen.